Ed's Blog

The Consumer Financial Protection Bureau has posted a press release on a joint enforcement action with the FDIC against Discover Card and Discover Bank. The story broke last week after Discover Card admitted to investors that it, like Capital One previously, had been caught allegedly charging consumers for what every consumer advocate considers useless, over-priced ($6-16/month or more) junk credit insurance or debt cancellation ("who will pay your credit card if you die, get sick, get laid off?") and credit monitoring add-ons ("stop identity theft!") that consumers didn't actually buy, but still were billed for on their credit card bills. Discover Card has agreed to pay a $14 million civil penalty to the CFPB and FDIC, plus refund over $200 million to ripped-off consumers. After the CFPB and another regulator, the OCC, dinged Capital One in July for similar alleged practices, we noted that "more credit card banks quit evil ways," as other banks got out of the tawdry biz.

From the CFPB: The joint investigation concerned deceptive telemarketing and sales tactics used by Discover to mislead consumers into paying for various credit card “add-on products” – payment protection, credit score tracking, identity theft protection, and wallet protection.[...] Because of the misleading language in the scripts and the actions of Discover’s telemarketers, consumers were: Misled about the fact that there was a charge for the products; [...] Misled about whether they had purchased the products; [...] Enrolled without their consent; [and...] Withheld material information about eligibility requirements for certain benefits.

As in the Capital One case, Discover victims will get automatic refunds. They don't need to do anything. 

In other weekend financial follies: More evidence that the new OCC is finally bringing its A game to its consumer law responsibilities, as it did in its Capital One joint enforcement action with CFPB, rather than just mailing it in, at best, as it did for many years. Our colleagues at the National Consumer Law Center report that "Banking Regulator Slams Urban Trust Bank, Issuer of Prepaid Card Payday Loans: OCC Finds Legal Violations and Unsafe Banking Practices:"

From NCLC: The government overseer of large banks, the Office of the Comptroller of the
Currency (OCC), has found “violations of law and regulations and unsafe and unsound banking practices”  by Florida-based Urban Trust Bank (UTB) [OCC agreement with UTB], the issuer of the Insight prepaid cards used by the payday lender CheckSmart to evade state payday and usury laws. The National Consumer Law Center (NCLC) detailed extensive legal problems with the bank’s prepaid card payday loans in a letter sent by NCLC, the Center for Responsible Lending, and the Consumer Federation of America to the OCC in May. The OCC responded that the consumer groups’ letter “raises several troubling concerns,” including “that the prepaid cards are sold in cooperation with a major payday lender” and have “characteristics similar to predatory payday loans.”

As we have previously noted, the OCC is under new management that recognizes that its job is to enforce the laws, not simply play golf with bankers, preempt state laws or sit second chair in bank lawsuits against states or consumers. Good to see another OCC action against unfair marketplace practices by a bank. As an example, back when it was the only regulator of most big banks, and it was under bank-friendly management, the OCC, on the very, very rare cases when it ordered restitution, usually required consumers to jump about like trained monkeys to get their money back, else the penalty simply reverted to the bank. See pages 31-33 of this joint consumer brief for a discussion related to the OCC having requiring victims of Wachovia abuses in 2008 to use an onerous process it ultimately was forced to change two years later).

Follies Continue: Meanwhile, the Wall Street Journal's Robin Sidel reports in her story:""Free" Checking Costs More" that bankrate.com finds that it is harder to get free checking as more big banks impose fees. Our PIRG Bank Fee Tips will help you shop around.

More Follies: Finally, in other credit card news, Fortune reports that despite record low borrowing rates for banks from the Fed, banks still impose high credit card interest rates on consumers. However, as I note to the reporter:

Another suspect is the Card Act, which was passed in 2009 and makes it harder for banks to charge card customers hidden fees. "It's a real 12%, instead of a fake 6% that really turns out to be 32% when you add in all the fees," says Ed Mierzwinski, who is head of consumer issues at the Public Interest Research Group, and a frequent critic of the credit card industry. "Interest rates are higher because the card act is working."

And that's this weekend's financial follies.

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